Currency Swaps in the Modern World. The Birth of the Global Currency Cartel (Part II)

Currency Swaps in the Modern World. The Birth of the Global Currency Cartel (Part II)

Before 2011, unlimited swaps between central banks were open for a period of seven days. In the autumn of 2011, however, the US FRS, the European Central Bank (ECB), the Bank of Japan, the Bank of England, the Bank of Switzerland and the Bank of Canada (the ‘big six’) agreed to coordinate actions to ensure the liquidity of the global financial system.According to the press release posted on the websites of the above-named central banks, the aim of these actions was “to ease tensions in the financial markets and thereby reduce the negative effects of this tension by issuing loans to households and business in order to stimulate economic activity”. This decision was prompted by the fact that signs of a second ‘wave’ of the financial crisis were becoming increasingly apparent in the global financial system.

The monetary authorities of America, the EU, Great Britain, Japan, Switzerland and Canada agreed to the following: a) to reduce the cost of providing dollar liquidity through currency swaps (linking its calculation to the indices of domestic currency swaps in the US banking system); b) to extend the period of currency swaps to up to three months; c) there will be no limits on the provision of dollar liquidity, the size of currency swaps will be determined by the needs of the corresponding country’s banking system; d) the Federal Reserve, as and when required, will also reserve the right to turn to its central bank partners for foreign currency; and e) the agreements will remain in effect from 5 December 2011 up to and including 1 February 2013.

Continue reading

Currency Swaps In The Modern World – The Birth Of The Global Currency Cartel (Part I)

Currency swaps (currency exchange transactions) have become a hot topic in today’s media. Just about every month we find out that some country has signed a currency swap agreement with some other country, and there are already dozens of these agreements in the world.

What is a currency swap?

Continue reading